Happiest Minds shares fall for 5th day as merger concerns weigh

ET Intelligence Group: Happiest Minds Technologies (HMT) has fallen on bourses for five straight sessions up to Wednesday, wiping out the stock's three-month gain of 21% entirely. Concerns over short-term uncertainty regarding its integration with ITC Infotech (ITCI) has triggered the sharp reversal in the stock movement.

However on Thursday, the stock reversed course, rising over 1% to hit the day’s high of Rs 359 on the BSE.



Additionally, ITCI initially plans to buy a 22.1% stake from HMT promoters for ₹1,330 crore in cash. The acquired stake is short of the minimum 25% required to trigger an open offer. It means while promoters receive the cash from the stake sale, there will be no cash exit for minority shareholders as the latter will receive proportionate shares in ITCI.

While the combined entity is expected to achieve better profits and profitability in the long run due to business synergies, HMT's stock is expected to be under pressure in the near term.

The deal structure involves two steps and will not require the buyer to launch an open offer for public shareholders. In the first step, HMT promoter Ashok Soota who owns 32% stake directly and another 12% through a medical research entity, totalling 44%, will retain the management control even after ITCI acquires 22.1% stake, which ITC will fund through a rights issue. In the second step, shareholders of HMT will receive 25 ITCI shares for every 81 shares held. This will complete HMT's merger into ITCI, which will also automatically pave the way for the latter to list on exchanges without opting for an initial public offering (IPO).

According to a research note by HDFC Securities, the share swap values HMT at ₹6,167 crore and ITCI at ₹11,920 crore, implying FY26 enterprise value (EV)/operating profit before depreciation and amortisation (EBITDA) multiples of 15.1 and 13.6 respectively. After the merger, ITC will own 73.4% of the combined entity. The implied market cap of the merged entity will be ₹18,060 crore.

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Based on FY26 financials, the combined entity will have a revenue of ₹7,033 crore ($790.5 million), making it the country's 11th largest listed software company. ITCI operated at a higher EBITDA margin of 18.5% compared with HMT's 17.4% in FY26. The merged entity will have a margin of 18.1% and a net profit of ₹737 crore.

The deal will offer the required size for the combined entity to bid for larger deals. ITCI focuses on verticals including consumer, hospitality and manufacturing while HMT caters to banking and finance, EdTech, and healthcare, which suggests lower overlapping in services. The merged entity expects to cross $1 billion in revenue by FY28 at 19.1% EBITDA margin.

HDFC Securities has downgraded HMT's stock to 'Add' from 'Buy' and reduced the target price to ₹400 from ₹440 citing lack of takeover premium and uncertainty due to longer expected duration of 15 months for the integration of two businesses. The stock closed at ₹354.5 on the BSE on Wednesday.